House Hacking a new SFR in 78660 Zip (Pflugerville)

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House Hacking a new SFR in 78660 Zip (Pflugerville)

Gary Lansford
Austin, TX · Member since 2016 · 3 posts · 3 votes

Hi All,

I'm trying to get my feet wet with my first real estate deal. I have been renting in Austin for the last 5 years and want to attempt at a house hack in a SFR. My GF and I both have good jobs in Austin and see ourselves staying here for at least the next 2-4 years.

I originally wanted to get a duplex but I cannot afford it in this market. So my options are now renting out rooms in an SFR. I spoke with my GF and she is on board with living with roommates for the next 1-2 years.

After reviewing the MLS for about a month, I am considering building a new home in the 78660 Zip code (around hwy 45 and 130). There are lots of new developments going up and we found a few builders that we liked in the area for around the 270k price point all in with some incentives if we go with their lender.

Our current rent is about $1230 and if we bought the house and put down 5% or so I'm looking at a mortgage payment of about $2150 a month. 

I'm looking to rent out 2 rooms in the house for $650 a piece (with a private living room for the roommates) + utilities. So if we are able to rent out both rooms we are reducing our current rent by $400 a month and gaining equity in the home. If we are unable to get roommates then worst case I would be essentially doubling my housing costs.

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Does this plan make sense? Or should I shop for a cheaper deal? Also, does anyone have experience renting rooms in this area? Airbnb an option?

Also FYI - I would be buying the property by myself. If we are able to get roommates my GF and I would split the remaining monthly costs. Worst case - If we cannot find I would pay 2/3rds of the rent (30% of my monthly take-home pay).  I have been pre-approved for $320k.

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Joe Scaparra
Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
8y

@Gary Lansford I mentor a few young adults and you my friend are the exact person suited to buy a duplex for their 1st property.  Buying your first anything is scary, I get this.  However, it is far less risk buying a duplex in your situation than buying a house.  

Lets look at risk for both scenarios.  You buy the duplex, you buy the house.  Housing market crashes, you lose your job, your financially stressed.  Or you get an opportunity for a job in another city, but housing market is down from when you bought.  If you sell either property you lose money.  If you own the home your forced to sell, not so with the duplex.  Here is why.  Selling the home because you have a large mortgage payment and since you are leaving your risk goes up crazy if you continue to try and rent to individuals by the room.  You may decide to rent to one person, say a family unit.  You would need to seek out $1600 to $1800 in rent to break even.   In a down market with people losing their job, this could prove to be difficult. Now look what happens to the duplex.  Your financially stressed, so you simply move out, rent the other side for $1100 and you now have positive cash flow.  Oh but you say what if I can't find renters.  Well it is far easier to find two $1100 renters than it is to find one $1600-$1800 renter.  During the down turn, rents at $1100 will be far more steady than those at $1600.  Plus you will feel stressed if your home is empty, whereas the duplex is usually going to have one side rented bring in much needed income.  I owned duplexes since 2002, I have never sold any of them and my rents during the last down turn were rock steady or increase during the down turn.  That is because you actually have more people looking to rent low cost (relative) because they were forced from either higher rent/mortgage situations ($1600).   The risk of owning a duplex is the inability to find a renter.  Right now in the Austin MSA if you put a for rent sign in the yard asking for rents below $1200 you have to take it down in 3 to 5 days as you will have too many inquiries.    One more perspective, the reason the duplex is better even if it cost 20k more is that the income production far exceeds the small increase monthly mortgage payment.  Also it is your opportunity to buy investment real estate with 5% - 10% down. 

Don't make the mistake of renting out your personal SFR as an investment once you move out. People I meet either love real estate or hate it as an investment vehicle. The majority of the time for those who hate it, have had a bad experience renting out their personal residence once they leave the home. I simply ask them, if your were going to buy an investment property, would you have bought the home you did knowing you were going to rent it out once you left. Most looking back realize there were better options........a duplex is a better option for investment real estate. Feel free to reach out to me for some coffee, after our meeting I am positive you will walk out with direction and positive motivation to find a duplex.

BTW, I have no conflict of interest, I am not a realtor, I will not try to sell you anything, I am simply a 62 yr old man who flew fighters for the USAF (20yrs), built a financial planning practice (20yrs, and sold it) and now consider myself a successful multi-family real estate investor, who likes sharing my experiences especially to young individuals who can most benefit from my advice.  Good luck in whichever path you choose. 

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  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    8y

    Gary, you sound like a good kid but your lying to yourself. Either you don't like duplexes or your not too bright. If you can afford 270 SFR then you can afford this 299k duplex. https://www.realtor.com/realestateandhomes-detail/...

    It won't be as nice as your SFR but it will be more profitable. Get off the SFR and keep focused on duplex investing. The numbers are too good especially for an owner occupant. Rent out one side, rent out one of the rooms on your side and live for $300-500 max a month. Life will be good and you will be building real wealth. Good Luck.

    3Reply
  • Gary Lansford
    OP
    Austin, TX · Member since 2016 · 3 posts · 3 votes
    8y

    @Joe Scaparra this would be my first property. I am not against duplexes at all - actually that was my original thought.

    I understand there is probably more profit in multi-units, but I think there is a difference between a new home at 270k and a duplex from 1984 at $300k + renovations is larger than I can handle.

    I think getting a SFR with roommates for a year or 2 has a lower barrier of entry to get started, especially in Austin area.

    0Reply
  • Nasar Bhegani
    Real Estate Broker · Houston, TX · Member since 2015 · 81 posts · 39 votes
    8y
    I’ve got to agree with Joe on this. If you’re truly looking to house-hack and build more equity you need to either get that mortgage payment down or get the rental income up. There’s a few way simple ways to achieve that: buy a cheaper sfr/duplex ideally or put down a higher down payment on the home. Although we count on renters to pay our mortgage every month, you need to account for vacancies and plan as if you’re going to be paying that mortgage every month. Make sure it’s something you can afford if it sat vacant for awhile. You’re on the right track just try to make the numbers work a bit more in your favor.
    3Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    8y

    @Gary Lansford I mentor a few young adults and you my friend are the exact person suited to buy a duplex for their 1st property.  Buying your first anything is scary, I get this.  However, it is far less risk buying a duplex in your situation than buying a house.  

    Lets look at risk for both scenarios.  You buy the duplex, you buy the house.  Housing market crashes, you lose your job, your financially stressed.  Or you get an opportunity for a job in another city, but housing market is down from when you bought.  If you sell either property you lose money.  If you own the home your forced to sell, not so with the duplex.  Here is why.  Selling the home because you have a large mortgage payment and since you are leaving your risk goes up crazy if you continue to try and rent to individuals by the room.  You may decide to rent to one person, say a family unit.  You would need to seek out $1600 to $1800 in rent to break even.   In a down market with people losing their job, this could prove to be difficult. Now look what happens to the duplex.  Your financially stressed, so you simply move out, rent the other side for $1100 and you now have positive cash flow.  Oh but you say what if I can't find renters.  Well it is far easier to find two $1100 renters than it is to find one $1600-$1800 renter.  During the down turn, rents at $1100 will be far more steady than those at $1600.  Plus you will feel stressed if your home is empty, whereas the duplex is usually going to have one side rented bring in much needed income.  I owned duplexes since 2002, I have never sold any of them and my rents during the last down turn were rock steady or increase during the down turn.  That is because you actually have more people looking to rent low cost (relative) because they were forced from either higher rent/mortgage situations ($1600).   The risk of owning a duplex is the inability to find a renter.  Right now in the Austin MSA if you put a for rent sign in the yard asking for rents below $1200 you have to take it down in 3 to 5 days as you will have too many inquiries.    One more perspective, the reason the duplex is better even if it cost 20k more is that the income production far exceeds the small increase monthly mortgage payment.  Also it is your opportunity to buy investment real estate with 5% - 10% down. 

    Don't make the mistake of renting out your personal SFR as an investment once you move out. People I meet either love real estate or hate it as an investment vehicle. The majority of the time for those who hate it, have had a bad experience renting out their personal residence once they leave the home. I simply ask them, if your were going to buy an investment property, would you have bought the home you did knowing you were going to rent it out once you left. Most looking back realize there were better options........a duplex is a better option for investment real estate. Feel free to reach out to me for some coffee, after our meeting I am positive you will walk out with direction and positive motivation to find a duplex.

    BTW, I have no conflict of interest, I am not a realtor, I will not try to sell you anything, I am simply a 62 yr old man who flew fighters for the USAF (20yrs), built a financial planning practice (20yrs, and sold it) and now consider myself a successful multi-family real estate investor, who likes sharing my experiences especially to young individuals who can most benefit from my advice.  Good luck in whichever path you choose. 

    5Reply
  • Zachary Barton
    Georgetown, TX · Member since 2016 · 96 posts · 74 votes
    8y

    Hey @Gary Lansford what you’re doing isn't unheard of. I have a couple clients who currently rent out single bedrooms in their homes and are quite satisfied with the results. However both of them still live in their respective homes and are able to manage that type of business plan.

    @Joe Scaparra rates some valid concerns and @Nasar Bhegani hit the nail on the head.

    How many bedrooms does the property have? Square ft?

    0Reply
  • Zachary Barton
    Georgetown, TX · Member since 2016 · 96 posts · 74 votes
    8y

    Also @Gary Lansford have you heard of the FHA 203(K) or the HomeStyle loans?

    0Reply
  • Costin I.
    Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
    8y

    1. If you have money for a 270K SFR and/or $2150/m mortgage payment, you definitely have money for a duplex.

    2. Austin is very restrictive regarding short term rentals (AirBnB). If you buy in Austin, check the regulations for that before.

    3. I doubt that renting room would be better than having a duplex neighbor, for a variety of reasons, economical and personal.  

    4. Be careful when buying with GF, who is getting on the title, what kind of ownership (TIC?) and that kind of things. What happens if things go sour with the GF later? Better to have those discussions now, before you get tied into a 270K something and discover 2 years down the road a bifurcation. Be clear on responsibilities and exit strategies.

    Keep it simple: buy a duplex in your name only, live in half with the GF, rent the other half. Renovate it together (forced appreciation). Two years later, sell or rent and repeat.

    Or potentially better alternative: buy a duplex in your name only, rent half to the GF (use it as proof of income for next one + get the deductions and depreciation for half of the half), rent the other half of the duplex. Renovate it together (forced appreciation). Two years later, sell or rent and repeat. Plus, can change the GF if defective...oops, I meant, GFCI (j/k). 

    2Reply
  • Gary Lansford
    OP
    Austin, TX · Member since 2016 · 3 posts · 3 votes
    8y
    Thanks everyone for the advice. I decided not to go with the $270k house. I’m going to keep researching deals for duplexes. TBH $270k for the house was stretching my budget thin and had a lot of risk if I couldn’t find tenets for a few months. After a few years if I moved out and got $850 a month for the master I would still have negative cash flow when all the rooms were rented out. So it didn’t make sense anymore. $850 (master) + $600 + $600 = $2050 and my mortgage would be $2170 per month. I plan to spend more time saving for a down payment / closing costs while continuing to look. I’m going to keep looking for duplexes under $270k and SFR under $225k as a backup option.
    3Reply
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